I don't think "better AI" always naturally translates to "smarter AI", at least in the sense of "AI that consistently kicks the human player's ass". It's not hard at all to make AI that can always hit a headshot, and I don't think anyone wants to play against that. But people were very impressed with the way AI in F.E.A.R. seemed to do things like topple furniture for cover, fall back from weakened positioning, and flank. AI that can make intelligent assessments of the local terrain- especially without hard-wired foreknowledge of that terrain- could be great. AI that makes human-like mistakes is frequently more impressive than AI that shows machine-like efficiency.
As far as models go, I think someone needs to make a universal "doll" that works like the avatar modeling in a game like Skyrim or Saint's Row, but on a grander scale. If someone could make a model that could convincingly be a hundred different people without anyone recognizing it as the same model with different texturing, I think it could be as big an advance as Havok physics. But it would need more than variable textures, higher brow-ridges, or a fatter midsection- you would need to create a model that could have visibly different weight distribution that would effect how it moved, different centers of gravity, different torso-to-leg ratios. If you could make one model that could be Lara Croft, Andre the Giant, or Gollum by virtue of a few minutes of tweaking, I think you could streamline a significant amount of character design, at least for NPCs.